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In this commentary, I will examine Chow Tai Fook Jewellery Group Limited’s (SEHK:1929) latest earnings update (30 September 2017) and compare these figures against its performance over the past couple of years, as well as how the rest of the specialty retail industry performed. As an investor, I find it beneficial to assess 1929’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time. View our latest analysis for Chow Tai Fook Jewellery Group
Did 1929’s recent earnings growth beat the long-term trend and the industry?
For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This method enables me to assess different companies in a uniform manner using the latest information. For Chow Tai Fook Jewellery Group, its latest trailing-twelve-month earnings is HK$3.61B, which, against last year’s figure, has jumped up by 38.64%. Given that these figures are fairly short-term, I have calculated an annualized five-year figure for Chow Tai Fook Jewellery Group’s net income, which stands at HK$4.97B This means despite the fact that earnings growth from last year was positive, in the long run, Chow Tai Fook Jewellery Group’s earnings have been waning on average.
Why is this? Well, let’s look at what’s going on with margins and if the entire industry is facing the same headwind. Revenue growth over the last few years, has been positive, yet earnings growth has been deteriorating. This suggest that Chow Tai Fook Jewellery Group has been ramping up expenses, which is hurting margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the HK specialty retail industry has been growing its average earnings by double-digit 19.05% in the prior twelve months, . This is a turnaround from a volatile drop of -4.32% in the last few years. This means that, in the recent industry expansion, Chow Tai Fook Jewellery Group is able to leverage this to its advantage.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Recent positive growth doesn’t necessarily mean it’s onwards and upwards for the company. There may be variables that are impacting the industry as a whole, thus the high industry growth rate over the same period of time. You should continue to research Chow Tai Fook Jewellery Group to get a more holistic view of the stock by looking at: